Protecting client money Carol Westrop, Head of Legal Policy Amanda Norton, Regulatory Manager Sean Hankin, Investigation Team Manager

Themes of the session… Update on approved changes to Accountants’ Reports Review of the SRA Accounts Rules and alternatives to handling client money

Progress to date… removing unnecessary burdens Phase 1 – client money received from legal aid agency work and unqualified reports Phase 2 – format of reporting accountants’ reports and exempting low risk firms Phase 3 – review of the Accounts Rules

Progress to date… improving the value of accountants’ reports Changes come into effect 01 November 2015 Removing the prescriptive approach to the work need to be undertaken to prepare the Report Providing guidance to the reporting accountant

Progress to date… improving the value of accountants’ reports Removing the requirements to obtain an Accountants’ Report for low risk/low impact firms Firms with no more than £10,000 average client account balance and a maximum client balance of no more than £250,000 will no longer need to obtain an Accountants’ Report

Progress to date…Improving the value of accountants’ reports See the SRA website for: New form AR1 for accountants’ reports Guidance for reporting accountants Q&A on the new approach Guidance on calculating whether you are exempt

Holding client money – the risks SRA Compensation Fund Paid out grants of £23.8m in year to 31/10 / (previous year £13.8m) Payments in respect of a range of transactions including conveyancing, probate, personal injury 1701 claims with an average pay out of £80,000 Interventions 38 interventions in the last 12 months. Of these, 17 involved loss or potential loss of client money

Holding client money - risks Mortgage fraud has long been a problem However phone/ scams now becoming an issue 2012 LSB’s Conveyancing Thematic Review recommended that regulators explore alternatives to providers holding client money July 2015 LSB briefing paper set out potential benefits/drawbacks of alternatives to holding money and recommended a series of safeguards for the use of third party escrow accounts

Benefits of an alternative approach for firms? For some firms – not holding client money could bring Reduced regulatory burden (compliance with Accounts Rules, auditing etc.) Reduced risk of fraud on the firm Reduced regulatory fees

Holding client money However, for many firms, the costs of holding client money are likely to continue to be outweighed by the benefits e.g. satisfying client expectations speed of access for rapid and bulk transactions favourable arrangements with banks

Third party escrow accounts SRA consulted on the use of third party escrow accounts as an alternative earlier in Formal decision will be taken as part of overall review of the Accounts Rules But firms interested in exploring alternatives now should contact SRA for discussion

Holding client money It is important that the SRA goes further in reducing unnecessary regulatory burdens on those who will continue holding client money whilst maintaining client protections. Phase 3 is a review of the SRA Accounts Rules: Consultation Spring 2016 Implementation not before April 2017

Aims of Phase 3 review Clear principle based approach Reduce the amount of prescriptive unnecessary detail Provide a simpler structure that makes the Rules easier to follow and to comply with Supported by toolkits to aid understanding Greater clarity to the role of the COFA

Questions?